Longstreet Corporation has a target capital structure that consists of 30 percent debt, 50 percent common equity, and 20 percent preferred stock. The tax rate is 30 percent. The company has projects in which it would like to invest with costs that total $1,500,000. Longstreet will retain $500,000 of net income this year. The last dividend was $5, the current stock price is $75, and the growth rate of the company is 10 percent. If the company raises capital through a new equity issuance, the flotation costs are 10 percent. The cost of preferred stock is 9 percent, and the cost of debt is 7 percent. (Assume debt and preferred stock have no flotation costs.) What is the weighted average cost of capital at the firms optimal capital budget?

1. 12.58%
2. 18.15%
3. 12.18%
4. 12.34%
5. 11.94%